City's players look disconsolate after conceding their second goal
Manchester City suffered a crushing defeat at the hands of Racing Santander but still won Uefa Cup Group A because Paris St Germain beat FC Twente.
Santander took the lead after 18 minutes when Oscar Serrano's cross fell for Jonathan Pereira to tap home.
Serrano exchanged passes with Pereira to make it 2-0 on the half-hour mark and Juan Valera added a third after the break when a corner was not cleared.
City were poor but replied with Felipe Caicedo's neat finish in injury time.
Manager Mark Hughes can draw comfort from the fact that winning the group means his City side will avoid the teams dropping out of the Champions League in Friday's draw for the last 32, and instead face a team who finished third in one of the other groups.
But he had precious little else to smile about after seeing his side's winless streak extended to five games on a miserable night in Spain.
Only goal difference is keeping City out of the bottom three of the Premier League but until this game their European form had been one of the few consistently positive aspects of Hughes' time in charge.
They had won all four of their previous away ties in this season's Uefa Cup but that run came to an abrupt halt at the Estadio El Sardinero, where City were given the runaround by a team languishing in the bottom half of La Liga.
Admittedly City were without captain Richard Dunne in defence or Stephen Ireland, Vincent Kompany and Shaun Wright-Phillips in midfield, but this was still an experienced line-up that included �32.5m Brazilian Robinho.
Yet Hughes' side seemed nervous in the early stages and almost went behind in the eighth minute when goalkeeper Kasper Schmeichel's clearance went straight to Mohamed Tchite, who fired wastefully wide.
The visitors were short of ideas going forward, with Robinho seemingly on a different wavelength to his team-mates, and Ched Evans grafting away to little effect.
They were also giving possession away far too easily in midfield and it was little surprise when Santander took the lead after 18 minutes.
A quickly-taken free-kick released Serrano down the left and Schmeichel could only push his low cross into the path of Pereira, who finished with aplomb.
City, at last, showed some signs of life, with Elano looking lively in the centre of midfield and Pablo Zabaleta looking dangerous in advanced areas down the right flank.
But Santander easily soaked up their pressure and extended their lead before the half-hour mark.
This time Serrano started and finished the move, exchanging passes with Pereira before nudging the ball past the on-rushing Schmeichel and into the bottom corner of the net.
It could have been even worse for City before half time as Tchite saw a powerful volley fly straight at Schmeichel but Santander did not have to wait too much longer for a third goal, which arrived in the 55th minute.
When a corner was not properly cleared, Pedro Munitis's cross was headed back across goal by Ivan Marcano for Valera to power the ball over the line.
By now Ireland had replaced the ineffective Robinho, and the substitute gave City the driving force they had been lacking.
But the visitors were still unable to threaten Santander goalkeeper Fabio Coltorti and the home side should have made it 4-0 when Tchite rounded Schmeichel but fired wide with the goal gaping.
It was a miss that cost his side as Caicedo's late strike, combined with a flurry of late goals for PSG against Twente, meant the French team progressed on goal difference at the expense of the Spaniards.
City were already safely through but Hughes will know they need a vast improvement before they face West Brom on Saturday.
Racing Santander: Coltorti, Valera, Garay, Cesar Navas, Marcano, Munitis, Colsa (Lacen 77), Luccin, Oscar Serrano, Tchite, Jonathan Pereira (Juanjo 83). Subs Not Used: Mario, Goncalves, Pinillos, Christian, Bedia.
Booked: Marcano, Oscar Serrano, Colsa, Garay.
Goals: Jonathan Pereira 20, Oscar Serrano 30, Valera 54.
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